GDP shows SA's challenges now home-grown - analyst
Cape Town - South Africa's challenges are now, more than ever, home-grown, Jason Muscat, FNB senior industry analyst at FNB, said in reaction to the latest gross domestic product (GDP) data released on Tuesday.
"The outlook for SA’s economy has deteriorated markedly in the wake of "significant policy missteps and political uncertainty", said Muscat.
"Slowing Chinese growth and potential for further US interest rate increases aren’t helping, but our challenges are now, more than ever, home-grown.
South Africa’s economy grew by 0.6% in the fourth quarter, following a 0.7% growth in the previous quarter, said Statistics SA on Tuesday. Real GDP increased by 1.3% in 2015, following an increase of 1.5% in 2014, Stats SA said, adding that the nominal GDP at market prices in 2015 was R4trn, which is R194bn more than in 2014.
Despite what he deems to have been a well-received Budget 2016, he is of the opinion that a sovereign credit downgrade remains probable "due to the historical disconnect between planned public sector wage expenditure ceilings and their implementation".
Muscat expects a contraction in the primary sector as the full impact of the drought takes hold and miners continue to reel on the back of lower commodity prices. On top of that, manufacturing remains "beset" by weak export demand, and wage negotiations scheduled for later this year in several sub-sectors pose even further downside risk, in his view.
"It is the tertiary sector, however, where we expect the biggest adjustment to play out. Higher taxes, inflation and interest rates are all set to crimp disposable income growth further and weigh heavily on the retail, financial and personal services sector," said Muscat.
“We remain particularly concerned about the employment outlook given tighter fiscal conditions and a lack of private sector investment due to flagging business confidence.”
Nedbank's economic unit also commented on the latest GDP data, saying SA's economic outlook remains poor on the back of slower global demand, particularly from China, as well as the slump in commodity prices.
In the unit's view, continuing infrastructure constraints will hamper the performance of the manufacturing sector. The latest Purchasing Managers Index, which remained in contraction territory at 47.1 in February, suggests to the unit that activity in the manufacturing sector will remain subdued in the coming months.
Furthermore, the performance of the agricultural sector is expected to continue to be hurt further by drought in key farming areas.
"Weak consumer confidence, high debt service costs and rising inflation, will limit growth in disposable income and therefore contain spending. This will have a negative impact on corporate profits, causing companies to limit capital expenditure. The economy projected to grow by only 0.2% in 2016, the unit said.
At the same time, it pointed out that the SA Reserve Bank (Sarb) continues to be conflicted by rapidly rising inflation, but also poor economic growth.
"We anticipate that the Sarb's MPC will tighten policy, hiking rates by 25 basis points in each of the following three meetings in order to contain the second round inflation effects as well as inflation expectations and also to provide some financial stability," said the unit.
Fin24
This article first appeared on News24 – see here.
